koch@mahler.DEC (Kevin Koch LTN1-2/B17 DTN229-6274) (02/13/86)
These are questions regarding trusts and the $600,000 lifetime
gift transfer exclusion. (Yes, I know the exclusion isn't $600,000
yet.)
Imagine that I set up a trust and put $100,000 into it. This
reduces the amount of my estate that can be transferred tax-free on my
death to $500,000. As I understand it, trusts can transfer unlimited
amounts of assets without paying any transfer taxes. Now lets imagine
that during my life the assets in the trust double from $100,000 to
$200,000. Do I still have $500,000 of transfer exemption? Am I not
better off than if the assets doubled outside of the trust, where they
would use up $200,000 of the transfer exclusion when they are disposed
of?
Next question: Given the above trust with $200,000 in it.
Imagine that I remove $100,000 from the trust, lets say to buy a
house. Does my transfer exclusion limit go back up from $500,000 to
$600,000? If so, what happens if I take the second $100,000 out of
the trust?
Final question: Are there any reasons I'm missing why it would
be a bad idea to hold my assets in a trust? Here are the good reasons
I know about: 1) Trusts don't go through probate. 2) If someone
sues me they can't get at the assets in the trust. 3) As the sole
trustee while I am alive, I control the trust, and am liable for the
trust's gains and losses exactly as if there were no trust. The tax
effects are neutral. There *ARE* tax reasons why I would not want to
hold my principal residence in a trust, so when I talk about assets, I
don't include that residence.
Kevin Koch (Koch is it)
...decwrl!dec-handel!koch // koch@handel.dec@decwrl.ARPAelliot@well.UUCP (Elliot Fabric) (02/16/86)
There are numerous types of trusts. If you were the sole Trustee, all of the money in the Trust would have been considered an incompleted transfer for tax purposes. The assets would, thewrefore, be included in your gross estate at death. If you had an independent Trustee, or a different Trustee in certain circumstances, a properly drawn IRREVOCABLE Trust would be a completed transfer for Tax purposes. You would not then be able to draw down some of the transferred money. As in all things tax-related, there are exceptions. Here the major exception is a so-called Short Term or Clifford Trust, which allows the asset to revert to you after 10 years or the life of the life income beneficiary. The Short Term Trust accomplishes income shifting from the trust creator to the income benficiary and is useful to some high income tax bracket individuals. A self-created, self-trusteed Trust would not be a shield to hold off creditors, especially where the creator-trustee is the sole beneficiary. A modicum of creditor protection may be possible with a highly-aggressive, extremely complex approach. But that is another topic. protection, but that would involve extremely complex, highly sophisticated approach, with no guarantee of result.